ITO WARD - 2(2), NEW DELHI vs. ALL CHECK DEALS INDIA PVT. LTD., NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “A”: NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No. 2923/Del/2019 (Assessment Year: 2014-15) ITO, Vs. All Check Deals India Pvt. Ltd, Ward-2(2). 94, Meghdoot Building, GF- New Delhi 12A, Nehru Place, New Delhi (Appellant) (Respondent)

Assessee by : Shri Sharat Rao, Adv Shri Paras Sharma, Adv Revenue by: Shri Kanav Bali, Sr. DR Date of Hearing 15/11/2022 Date of pronouncement 24/11/2022

O R D E R PER ANUBHAV SHARMA, J. M.: 1. The present appeal has been preferred by the Revenue against the order dated 26.12.2016 of Ld. CIT(A)-32, New Delhi (hereinafter referred as Ld. First Appellate Authority) arising out of an appeal before it against the assessment order dated 10.11.2016 passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred as „the Act‟) by the Assessing Officer, ITO, Ward-2(2), New Delhi (hereinafter referred as the Ld. AO).

business and income from other sources. During the course of assessment proceedings, Ld. AO observed that assessee company had made payment of Rs.88,65,456/- towards receipt of services from M/s Info Edge India Ltd. (here in after mentioned as IEIL) being holding company of appellant towards infrastructure and business support expenses as disclosed vide point 25(b) of the audited financials. Assessee was asked to produce documentary evidences of handing charges. Assessee company submitted that it had used office of IEIL to do business and there were certain common expenses which were incurred at particular locations which included infrastructure related services, use of assets of IEIL, building and administrative overheads, services of accounting person/secretarial/legal persons. It was also submitted that cost of all such service is first calculated on actual cost basis and then the share of the assessee company is invoiced by IEIL to the assessee company on cost to cost basis. It was further stated that the cost of these services was first paid by the IEIL and then the cost pertaining to assessee company was recovered by it from the assessee company on cost to cost basis. Ld.AO observed that an amount of Rs.88,65,456/- towards payment of handling charges excluding the service tax was made to M/s Info Edge India Ltd. for supposedly usage of premises for electricity. However, no basis and justification of the expenses claim was given by the assessee. Ld. AO also observed that apart from the payment to M/s Info Edge India Ltd. towards various infrastructure facility the assessee company as also incurring expenses towards Employee Contribution/ Advertisement/ promotion cost/administration and other expenses/network, internet and other direct charges. Therefore, he held that the payment of Rs.88,65,456/- made to M/s Info Edge India Ltd. was basically passing on the profit to the holding company without actually receiving any real service and therefore, he held that payment made to M/s Info Edge India Ltd. towards handling charges is treated as not incurred fully and exclusively for the business of assessee company. Accordingly, he disallowed an Page | 2

amount of Rs.88,65,456/-. He held that payment of Rs.88,65,456/- made to IEIL is actually in the nature of sharing of revenue without obtaining any real services from them and therefore, is excessive and unreasonable expenditure u/s 40A(2)(a) of the I.T. Act, 1961. 3. Alternatively, he held that providing of infrastructure and business support facility to IEIL to assessee company is in the nature of contractual/professional services and therefore, TDS u/s 94C/194J of the Act was required to be deducted. 4. Ld. AO also observed that there was a difference in the receipts declared by appellant and the amount reflected in 26AS. Assessee was asked to file party wise receipts and TDS in the books of assessee with 26AS. Assessee submitted that overall receipts group wise was reflected in 26AS. Ld. AO held that every company of the group is independently liable to TDS on payment which are receipt of the assessee company and therefore, receipts are required to be considered party wise in the hands of the assessee. Accordingly, he disallowed an amount of Rs.3,03,68,294/-. 5. Assessee approached Ld. CIT(A) in appeal against these additions where Ld. CIT(A) held as follows; “During the course of appellate proceedings appellant has stated that similar disallowance on account of reimbursement of expenses invoking the provisions of section 37(1) r.w.s. 40A(b) and section 40(a)(ia) has been allowed by Hon’ble CIT(A) in appellant’s own case for A.Y. 2012-13 & A.Y. 2013-14. The relevant portion of the order for A.Y. 2012-13 is reproduced as under: “From the above discussion it is clear that the appellant has utilized services of its parent company at certain places in the form of space I.T. related services, services of senior management, services of finance, accounts and secretarial services, electricity, fixed assets of IEIL and also advertisement related services at the places where appellant does not have its

office independently. Therefore, the reimbursement was made to its parent company of Rs. 1,16,22,056/- for the services utilized. The observation of the AO that these expenses were made by the appellant for diversion of the profit and not for business purposes and without any rendering of services is not based on the correct appreciation of the facts. In this regard, it is mentioned here that M/s Info Edge (India) Ltd. has raised quarterly bills to the appellant company for the services provided to it where the appellant does not have its office independently or for providing the management, secretarial or other related services to the appellant as and when required. Such receipts have been declared by M/s Info Edge (India) Ltd. in its profit & loss a/c and have been offered for the taxation in the same year. The bills raised by M/s Info Edge (India) Ltd. were submitted before the AO at the time of assessment and this fact has been mentioned by the AO at para 3.1 and 3.2 of the assessment order. Therefore, the observation of the AO that appellant has not provided further information is not correct. Further, the appellant has filed application u/R 46A and such bills were again produced before me and forwarded to AO for examination. Therefore, all relevant information has been provided by the appellant in support of the expenditure reimbursed to Info Edge (India) Ltd. As regards the AO’s observation that appellant has separately debited expenses under each head in the Profit & Loss A/c, it is seen that such expenses pertains to the places where the appellant has its office independently and not taking any services from the IEIL. The Assessing Officer has misunderstood the issue and has observed that appellant has reimbursed the expenses over and above the expenses debited to Profit & Loss A/c under such heads. The fact of the matter is that both the expenses have been incurred wholly and exclusively for business purposes and expenses directly debited to Profit & Loss A/c pertains to the appellant's offices Page | 4

where it has its office independently whereas the reimbursement made to IEIL pertains to the offices where appellant does not have its independent office and also for utilizing I.T. related services, consultancy of senior management, services in the field of finance, account, legal, utilization of fixed assets and advertisement services. In view of the above, it is held that reimbursement has been made for utilization of services. As regards the AO’s observation that these regard, it may be mentioned here that appellant is a loss making company whereas Info Edge (India) Ltd. is declaring income more than Rs. 116 crore and is paying taxes on the same, therefore, the observation of AO is not correct and there is no diversion of profit. In view of the above, it is held that reimbursement has been made for utilization of services of IEIL and the same were wholly and exclusively for the business of the appellant and same are allowable. Hence, the disallowance made by the AO is deleted. The appellant has relied upon the judgments of Hon’ble Supreme Court in the case of CIT Vs. Malyalam Plantation Ltd. 53 ITR 140, Shri Meenakshi Mills Ltd. Vs. CIT, 63 ITR 207, CIT Vs. Dhanrajgirji Raja Narsingirji, 94 ITR 544 (SC), Birla Cotton Spinning and Weaving Mills Ltd. Vs. CIT, 64 ITR 568 (Calcutta), CIT Vs. Modi Revlon Pvt. Ltd., 26 taxmann.com 133 (Delhi) in support of its contention that expenses incurred for the purposes of business has to be allowed. These judgments supports the argument of the appellant wherein it is held that expenditure incurred for carrying on business and to protect the interest of business has to be considered for the purposes of business notwithstanding that the said expenditure has not resulted in generating any income in the relevant year. The courts have also held that it is not open to the revenue authorities to prescribe what expenditure is to be incurred and in what circumstances and what proportion. Therefore, the AO was not correct in holding that such Page | 5

expenditure was not incurred for the purposes of business merely because the appellant’s revenue during the relevant year had decreased as compared to the last year. In view of the facts discussed above and various judicial pronouncements, it is held that the reimbursement of handling charges to the IEIL was wholly and exclusively for business purposes and such expenses are allowable u/s 37 of the Act. Hence, the disallowance made by the AO is deleted.” I have carefully examined the claim of appellant. It is seen that facts in the instant year are identical to the facts in A.Y. 2012-13 and A.Y. 2013-14 in appellant’s own case. Therefore, respectfully following the order of Hon’ble CIT(A) order in appellant’s own case, the disallowance of Rs.88,65,456/- is deleted.” In regard to disallowance of Rs.3,03,68,294/- as shortfall of revenue in respect to the receipts as per Form 26AS. Ld. CIT(A) observed; “Appellant has submitted that the addition of Rs.3,03,68,294/- has been made on estimate basis whereas only unmatched receipts of 26AS with books of accounts have been taken into account and the unmatched receipts on Rs.3,84,08,114/- recorded in the books of accounts have not been taken into account. Therefore, the factual position is that as per books assessee has recorded more revenue amounting to Rs.33,40,689/- as against the revenue shown as per 26AS statement. I have carefully considered the observations of AO and submissions of appellant. From the perusal of page 58 to page 62 of paper book, it is seen that invoice as per books of appellant is Rs. 13,94,58,955/- whereas amount credited at per 26AS is Rs. 13,61,18,266. Therefore, appellant has disclosed excess receipt of Rs.33,40,689/- in its books of account. AO has made the disallowance merely on the basis of 26AS and no adverse finding has been brought Page | 6

on record by AO. Further it is seen that AO has not taken into account the unmatched receipts of Rs.3,84,08,114/- recorded in the books of accounts against which no receipts have been reflected in 26AS statement. Appellant has also filed group-wise reconciliation. It is also to be noted that appellant has recorded its income as due/accrual basis and it is also a fact that appellant has no control over its clients as how they have treated the expenses in its books) Therefore, I find substance in the claim of appellant that it has rendered services to group companies of clients who run their business through various units as per the practice of real estate business and record entries in their books of accounts as per their accounting practice. This type of functioning as well as accounting appears to be prevalent in real estate sector. It is also to be noted that appellant has not claimed more TDS than the amount reflected in 26AS statement. Therefore, in essence it is seen that appellant has declared more receipt in its book of accounts than what has been reflected in the 26AS statement. Further, it is seen that AO has merely taken the difference in the receipts reflected in 26AS vis- a-vis the books of accounts of appellant whereas he has not taken into account the receipts which are recorded by appellant in its books of accounts but the same has not been reflected in 26AS statement. Moreover, there is no other adverse finding by AO except the receipts reflected in 26AS statement. Therefore, no addition can be made merely on relying on 26AS statement and ignoring the method of accounting applied and other details submitted by appellant and previous year assessments where no such addition is made on this ground. It is also to be noted that no discrepancy has been pointed out by AO in the books of accounts of appellant. Therefore, in view of the facts of the case, it is held that there is no short recognition or less declaration of receipts by the appellant. Accordingly, the disallowance of Rs.3,03,68,294/- is deleted.”

deemed to have applied that the TDS post obtaining 26A form. The ld AR referred to Hon'ble Delhi High Court judgment in case of CIT Vs. Modi Revlon (2012) 26 taxmammn.com 133 and submitted that in any case the ld AO had to first return a finding that the payment made is excessive u/s 40(a)(ii) of the Act and that having been not done the addition cannot be sustained and the ld CIT(A) has rightly concluded on the basis of previous years findings that the issue is not sustainable. 10. In regard to ground No. 1 it can be observed that the ld AO has primarily formed an opinion that the assessee has shown expenses under various similar heads as paid to its parent company and those expenses have been shown in the Profit and Loss Account. This opinion of the ld AO has been the foundation to conclude that the payment made to the parent company were nothing but an attempt to pass of profit without receiving any service. 11. In this context it can be appreciated that relevant clause of memorandum of understanding available at page No. 395 to 396 of the paper book establish the fact that the assessee company had entered into the MOU with its parent company to use the premises and infrastructural facilities of the parent company in areas where the assessee did not consider its beneficial to have own lease premises or an independent infrastructural and other related facilities. Therefore, on the basis of cost to cost basis of direct expenses and proportionate basis in terms of proportion of employees for indirect/ allocated expenses, the assessee company had agreed to make the payments. 12. However, from the order of the ld it comes up that he had failed to take note of the fact that primarily the assessee company had preferred to make payment to its parent company to cut it‟s costs as the parent company was already operating from multiple locations across India where it had office premises and set up with various vendors providing various infrastructure related services while the assessee company had its own leased premises at Delhi NCR only while it was operating across India, where its parent was also operating Page | 9

simultaneously. The assessment order no where examined the financials of the assessee company to conclude that the payment were made beyond fair market value of the services rendered by the parent company or that those cost to cost basis payment of charges were not justified with the nature of volume of business of the assessee at different locations. The short sighted approach of the ld AO had been rightly considered by the ld CIT(A) while appreciating the statements of the assessee and the modalities of the running the business in association with the parent company. 13. The findings of the ld CIT(A) in assessee‟s own case for Assessment Year 2012-13 and 2013-14 as reproduced in the impugned order of the ld CIT(A) and also reproduced above in para 5, show that the ld AO had fallen an error in observing that the assessee has separately debited the expenses under similar heads in profit and loss account as it ignored that such expenses pertain to office where the assessee was having office independently and was not taking any service from IEIL. This the bench is of considered opinion that the findings of the ld CIT(A) in deleting the additions require require no interference. 14. In regard to ground No. 2 it can be observed from the order of the ld CIT(A) that taking into consideration the nature of transactions in the real estate sector and the fact that the assessee has not claimed more TDS than reflected in 26AS statement, had deleted the addition. The reasoned finding of the ld CIT(A) require no interference. 15. The grounds are decided against the revenue. The appeal of the revenue is dismissed. Order pronounced in the open court on 24/11/2022. -Sd/- -Sd/- (SHAMIM YAHYA) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 24/11/2022 A K Keot